LONDON,13 October 2005 – The slide in airline insurance premium rates will slow during the October to December renewal season, despite a good safety record in 2005, according to the ‘Airline Insurance Market Review’*, a new report from Aon, a leading insurance broker and risk management consultant.

The aviation sector has seen limited direct damage from the devastating hurricane season in the southern states of America, but the knock-on effect is that underwriters will try and end this year’s run of premium reductions, which have averaged at 7% for liability and hull insurance combined. Instead, there is likely to be a decline in premium reductions with certain aviation insurers already claiming that their aviation reinsurance costs have increased.

Year-to-date hull and liability premiums stand at over US$530m, a reduction of 15% for hull and 13% for liability rates, in comparison to nearly US$575m for January to September 2004. With the bulk of renewals taking place in the last quarter plus increased fleet values and thus exposure, premium volumes are expected to edge closer to US$2bn.

The expected reduction of over 15%, from US$2.4bn in 2004, is partly the result of consolidation between airlines such as Sterling Airways and Maersk Air, US Airways and America West Airlines, Swiss and Lufthansa, as well as changes such as ABX Air being included in the DHL-led cargo airline pool. 

Hull losses for the first eight months of 2005 totalled US$430.5m, decreasing 14% from US$503m for August 2004 which went on to become one of the industry’s safest years. This strong safety record meant that there is little evidence that the five major airline crashes in August will have a significant impact on renewal premiums. While the safety record has not had an impact, however, the hurricane season has.

Doug Peterson, Aon Aviation Global Practice Leader, said: “The change in the aviation reinsurance market highlights how the insurance sector has had to react to situations beyond its control, in this case Hurricanes Katrina and Rita. The airline industry itself, however, has responded positively to a variety of changes and challenges, such as high oil costs, the vocal environmental lobby and the rise of the low cost sector. Against this background, and despite the five major losses in August, the industry has also continued to maintain its excellent safety record.”

*Aon has published an Airline Insurance Market Review that provides a broad overview of the market between January and August. As well as the key issues of this year’s renewal season, it examines the growing number of low cost and budget airlines that have entered the market, the hull war market, aviation legal liability and the impact of insurance and oil prices on the airline sector’s bottom line. For a copy of the report, contact magnus.allan@aon.co.uk

Note to Editors:

About Aon

Aon Corporation (www.aon.com) is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. The company employs approximately 48,000 professionals in its 500 offices in more than 120 countries.  Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions.

This press release contains certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results, depending on a variety of factors.  Potential factors that could impact results include the general economic conditions in different countries around the world, fluctuations in global equity and fixed income markets, exchange rates, rating agency actions, resolution of pending regulatory investigations and related issues, including those related to compensation arrangements with underwriters, pension funding, ultimate paid claims may be different from actuarial estimates and actuarial estimates may change over time, changes in commercial property and casualty markets and commercial premium rates, the competitive environment, the actual costs of resolution of contingent liabilities and other loss contingencies, and the heightened level of potential errors and omissions liability arising from placements of complex policies and sophisticated reinsurance arrangements in an insurance market in which insurer reserves are under pressure.  Further information concerning the Company and its business, including factors that potentially could materially affect the Company’s financial results, is contained in the Company’s filings with the Securities and Exchange Commission.